B4 TMorgan

B4: Is your flexible benefits scheme exposing you to major risks?
Please ensure that your mobile phone is switched off during the session. Thank you. Session sponsored by
PEOPLE SERVICES
Flexible Benefits Risk Management

4 October 2006
ADVISORY
Agenda
Introduction
Why Manage Risks

Key Risk Areas
Strategic Risk Technical Risk Execution Risk
Top Tips Summary
2006 KPMG LLP, the U.K. member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
Introduction
Why focus on risk management?
Clear ROI is generally essential The change in approach by HMRC is shifting the tax risk dynamic Benefits are increasing in complexity - e.g. bicycles Employment law considerations continue to be critical given legislative
changes
Execution without due regard to risk could impact the integrity of Flex as
a valuable HR tool to deliver business benefits
Introduction
The reality of risk:
Risk means different things to different people It has differing priorities within organisations The understanding of the risk differs across employers Industry awareness of risk has lagged behind the benefits of Flex
Why Manage Risks

Risk management helps to ensure a successful project:
Financial Return on Investment Employee proposition and take up Internal credibility of HR It mitigates the reputational risk in the employment marketplace Managing your risk profile with HMRC is an ongoing process Corporate governance requirements are increasingly important in the
Sarbanes-Oxley environment (e.g. s404)
Risk Mitigation in Practice
Impact of risk if occurs
Acceptable risk profile for organisation
X X X
X X X X X X X X X X X X X X X X X X X
X X
Probability of risk occurring

Defining Risks
Risks fall into three broad categories
Strategic Risk
Technical Risk
Execution Risk
Intent
Understanding
Delivery
Strategic Risk Intent

Strategic risks relate to whether or not the flexible benefits scheme is the right thing to do for the organisation, including:
Does the introduction of Flex align with your reward strategy Is there a cultural fit or barriers to implementation culture How full is the HR change agenda Is there a Return on Investment on the implementation
Is there key stakeholder (e.g. Board) understanding of Flex
Technical Risk Understanding

Technical risks relate to the technical design of the Flex scheme, including:
Tax (income, corporate and VAT) and NI compliance Scheme design interaction with HR policies Flex funding model and existing benefits Employment law, e.g. discrimination Approach to employee consent
Future proofing employer discretion
10
Execution Risk Delivery

Execution risks relate to the actual implementation of the scheme, including:
Project management, including risk identification and mitigation Successfully executing the salary sacrifice Systems developments/interfaces Employee communications and the launch process HR processes how to integrate flex into these
HMRC approval
11
Sample Risk Register
Risk
Probability
Impact
Avoidance and mitigation actions Bring forward development and release dates Engage unions as key stakeholders. Brief unions prior to employee survey
Contingency
Date raised 4/10/06
Assigned to TM
Closure
Payroll migration slips past target migration date Trade unions may not support the scheme and encourage employees to opt out
Continue to run on existing payroll Revisit Comms strategy with follow up mailing and roadshows
4/10/06
TM
12
Top Tips
Understand the business case and do not lose visibility of it
Actively plan to incorporate risk management into your project/scheme Use a project management methodology and plan with contingency Design the scheme to maximise your ROI
Employee communications are critical from both a take-up/success
perspective and a risk mitigation one

Data and systems underpin the delivery include IT as a key
stakeholder
Select your advisor carefully
Engage with HMRC in the right way! Its not too late even if you have implemented Flex, acting now could
prevent potential future issues

13
Summary
Understanding the ROI is key to the future case for Flex
Integrated risk management is a more effective approach The approach to risk management should reflect your organisation Whilst simple in concept, the devil is in the detail. Make sure you have
the relevant combination of competencies to deal with the various issues

Be clear about the scope of the project and the capability of the advice
that is provided to you
14
Lynne Stockton HR Director Penauille Servisair
4th October 2006
Agenda

Overview of Penauille Servisair Our HR Strategy and Flexible Benefits Key risk considerations Delivering imagine
Risk management
Our successes The future of imagine
Company structure
Penauille Servisair is a division of French facilities management group Penauille.
33,000 staff Facilities Management Security Safety Energy
22,000 staff Airport Services
Penauille Group is owned by a financially strong listed company :
A global organisation On average, we handle an aircraft movement every 19 seconds

We have more than 700 customers worldwide We handle more than 102 million passengers each year Each year, 825,000 tones of Cargo are handled We re-fuel around 1.1 million aircraft per year
Our operations worldwide

We have Operations in 143 locations in 28 countries
We are a global organisation
Who are our customers?

A few examples.
Company Ambition

A service offer directed at the final customer A strong presence in each market segment
A service that delivers operational excellence

Focus on meeting customer expectations and adding greater value
To develop operations in growing markets

Engaging employees to improve retention
HR strategy components

Talent Management Performance Management & related Compensation system Best in sector Training & Development Resource planning and optimisation
Employee Retention initiatives

Promote Constructive Employee Relations Improve Internal Communications
Why introduce Flex?
Help Penauille Servisair to become employer of choice within the industry Improve employee retention & recruitment
Provide greater choice for employees in the selection of the company benefits they receive.
Improve understanding of the Total Reward package provided Improve Work-Life balance (themed around well being) Add to existing Exclusive voluntary benefits (flight discounts, airport retail discounts, executive lounge access)
Key risk considerations
Establishing the business case Challenging some perceptions:

Flex is not appropriate for the service industry Low paid employees will not use flex The geography/communications great challenges are too
It is too complex to deliver in this environment
Delivering to the business case
Establishing the business case
A feasibility study in conjunction with KPMG to:
Collate and analyse employee views on reward and benefits

Quantify the financial business case and ROI
Understand the challenges for implementation

Scope out implementation plans
Delivering imagine
Key project risks:

Communicating with employees
Payroll related issues

Other considerations (Technical, Compliance) Unplanned impacts HCI closure
How do we communicate imagine?

Internally

Specific Imagine Branding Road shows to promote scheme Imagine Packs sent to employees Imagine website
details of all benefits available allows employees to enrol online
Externally

Recruitment Agencies breakfast briefing seminars Recruitment literature defining benefits of flex PR HR, Trade & Local airport press
David Smith
Payroll related issues

Payroll is a key dependency for flex Change of software provider project with concurrent launch timelines Integrated project management was key Specific risk analysis of both projects at milestones Risk impact in event of problem would create complex contingencies Solution = change launch of flex from January to April
Other considerations
Ensure compliance areas are covered (Pensions, tax, employment law, payroll) Consider key stakeholders (Unions, Managers, Employees, Board of Directors) Simplicity to employees is critical, yet the detail must be addressed Balanced information, in an easy to use format, included in the imagine guidebook and online
Unplanned impacts

Removal of HCI schemes came during the enrolment process Working with KPMG we complied with technicalities to allow employees to still choose PCs
The ability to move quickly allowed a number of employees to still benefit from this
Benefits on Offer
Imagine Benefits

Pension Healthcare Cash Plan Dental Insurance Health Screening Critical Illness Bicycles
Childcare Vouchers Holidays Retail Vouchers Travel Insurance Home Computers (up until April 06)
Voluntary Benefits

Gym Membership Discounted Lufthansa Flights Executive Lounge Access RAC Roadside Assistance Discounted Ford Cars Discounts at airport retail outlets
How successful has imagine been?
20% take up amongst employees including Pension Salary Sacrifice Quarterly enrolments allow increased take up throughout the year Positive Feedback from Employees and new recruits External awareness employee reward of Penauille Servisairs agenda for
2006-07 Target increase to 25-30% 2006-07 introduce new benefits based on employee feedback (Dry Cleaning, Life Assurance, more voluntary benefits) Roll out imagine to Northern and Southern Ireland
Risk factors in managing flexible benefits

Staff turnover and administration Leavers and outstanding balances
Process management
Continued PR to maintain participation Active feedback on ROI profile
Refresh and invigorate
Summary

Make sure that the project supports the HR strategy Structure the business case to ensure ROI matches corporate expectations
Choose the right partner to provide expert advice and delivery Plan carefully and allow contingency Dont be afraid to take difficult decisions in the broader interest (e.g. defer launch)
Thank you Questions?
B4: Is your flexible benefits scheme exposing you to major risks?

Please ensure that your mobile phone is switched off during the session. Thank you. Session sponsored by

B4 TMorgan

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B4: Is your flexible benefits scheme exposing you to major risks?

Flexible Benefits Risk Management

Why Manage Risks

Top Tips Summary

a valuable HR tool to deliver business benefits

Why Manage Risks

Sarbanes-Oxley environment (e.g. s404)

Risk Mitigation in Practice

Impact of risk if occurs

Acceptable risk profile for organisation

Probability of risk occurring

Strategic Risk Intent

Is there key stakeholder (e.g. Board) understanding of Flex

Technical Risk Understanding

Future proofing employer discretion

Execution Risk Delivery

Sample Risk Register

Date raised 4/10/06

Employee communications are critical from both a take-up/success

perspective and a risk mitigation one

prevent potential future issues

the relevant combination of competencies to deal with the various issues

that is provided to you

Lynne Stockton HR Director Penauille Servisair

4th October 2006

Penauille Servisair is a division of French facilities management group Penauille.

33,000 staff Facilities Management Security Safety Energy

22,000 staff Airport Services

Penauille Group is owned by a financially strong listed company :

A global organisation On average, we handle an aircraft movement every 19 seconds

Our operations worldwide

We are a global organisation

Who are our customers?

A service that delivers operational excellence

To develop operations in growing markets

Employee Retention initiatives

Why introduce Flex?

Key risk considerations

Establishing the business case Challenging some perceptions:

It is too complex to deliver in this environment

Delivering to the business case

Establishing the business case

A feasibility study in conjunction with KPMG to:

Collate and analyse employee views on reward and benefits

Understand the challenges for implementation

Key project risks:

Communicating with employees

Payroll related issues

How do we communicate imagine?

Payroll related issues

How successful has imagine been?

Risk factors in managing flexible benefits

Staff turnover and administration Leavers and outstanding balances

Refresh and invigorate

Thank you Questions?

B4: Is your flexible benefits scheme exposing you to major risks?

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